Executive Overview

The company designs, manufacturers, packages, distributes and sells medical, surgical, diagnostic and patient care devices. The company sells a broad, diversified portfolio of products to hospitals, individual healthcare professionals, extended care health facilities and alternate site facilities in the United States and abroad, principally in Europe and Japan. In general, the company's products are intended to be used once and then discarded or implanted either temporarily or permanently. The company reports sales in four major product group categories: vascular, urology, oncology and surgical specialties. The company also has a product group of other products.

The company's earnings are driven by its ability to continue to generate sales of its products and improve operating efficiency. Bard's ability to increase sales over time depends upon its success in developing, acquiring and marketing innovative and differentiated products that meet the needs of clinicians and their patients. For the nine months ended September 30, 2008, the company spent $159.1 million on research and development ("R&D"), including purchased R&D. The company expects R&D spending, excluding purchased R&D, to continue to increase in the future. The company also makes selective acquisitions of businesses, products and technologies, generally focusing on small to medium sized transactions to provide ongoing growth opportunities. In addition, the company may from time to time consider acquisitions of larger, established companies under appropriate circumstances. The company may also periodically divest lines of business in which it is not able to reasonably attain or maintain a leadership position or for other strategic reasons.

On June 12, 2008, the company decided to discontinue the sale of its Salute II hernia fixation device. This decision was based on a strategic review, which considered the continued technical challenges associated with the product's manufacturing and its overall profitability, as well as an assessment of alternative devices under development. In connection with this decision, the company recorded a non-cash charge of $40.5 million ($34.9 million after-tax).

On June 5, 2008, the company acquired all of the outstanding shares of Specialized Health Products International, Inc. ("Specialized Health Products") for a purchase price of $1.00 per share in cash, totaling $68.4 million, plus direct acquisition costs of $2.3 million. Specialized Health Products manufactures and markets vascular access products, including winged infusion sets, which are used to deliver therapeutic agents through vascular access ports. The acquisition represents a strategic addition to Bard's port franchise.

On January 11, 2008, the company acquired the assets of the LifeStent ® family of stents from Edwards Lifesciences Corporation ("Edwards Lifesciences") for a net cash payment of $73.2 million, plus direct acquisition costs of $3.6 million, and up to $65.0 million in contingent milestone payments. The acquisition represents a strategic addition to Bard's portfolio of non-coronary stent and stent graft products that is complementary to our current products, call points and technology platforms.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional discussion of the acquisitions and the divestiture.

Results of Operations

Net Sales

Bard reported consolidated net sales for the quarter ended September 30, 2008 of $616.8 million, an increase of 13% on a reported basis (11% on a constant currency basis) over the quarter ended September 30, 2007 consolidated net sales of $544.8 million. Bard reported consolidated net sales for the nine months ended September 30, 2008 of $1,817.9 million, an increase of 12% on a reported basis (10% on a constant currency basis) over the nine months ended September 30, 2007 consolidated net sales of $1,618.7 million. Net sales "on a constant currency basis" is a non-GAAP financial measure and should not be viewed as a replacement of GAAP results. See "Management's Use of Non-GAAP Measures" below.

Price changes had the effect of increasing consolidated net sales for the quarter ended September 30, 2008 by 0.5% compared to the same period in the prior year. Exchange rate fluctuations had the effect of increasing consolidated net sales for the quarter ended September 30, 2008 by approximately 2% as compared to the same period in the prior year. Price changes had the effect of increasing consolidated net sales for the nine months ended September 30, 2008 by 0.1% compared to the same period in the prior year. Exchange rate fluctuations had the effect of increasing consolidated net sales for the nine months ended September 30, 2008 by 2% as compared to the same period in the prior year. The primary exchange rate movement that impacts net sales is the movement of the Euro compared to the U.S. dollar. The impact of exchange rate movements on net sales is not indicative of the impact on net earnings due to the offsetting impact of exchange rate movements on operating costs and expenses, costs incurred in other currencies and the company's hedging activities.

U.S. net sales in the quarter ended September 30, 2008 of $419.5 million increased 11% compared to $378.2 million in the prior year quarter. International net sales in the quarter ended September 30, 2008 of $197.3 million increased 18% on a reported basis (11% on a constant currency basis) compared to $166.6 million in the prior year quarter. U.S. net sales for the nine months ended September 30, 2008 of $1,225.0 million increased 9% compared to $1,126.9 million in the prior year period. International sales for the nine months ended September 30, 2008 of $592.9 million increased 21% on a reported basis (12% on a constant currency basis) compared to $491.8 million in the prior year period.

Presented below is a discussion of consolidated net sales by disease state for the quarters and nine months ended September 30, 2008 and 2007, respectively:

Product Group Summary of Net Sales



                                              Quarter Ended September 30,                 Nine Months Ended September 30,
                                                                       Constant                                        Constant
(dollars in millions)                    2008      2007     Change     Currency       2008        2007      Change     Currency
Vascular                                $ 160.6   $ 134.1       20 %         15 %   $   474.6   $   397.7       19 %         14 %
Urology                                   174.5     166.4        5 %          4 %       519.6       482.5        8 %          6 %
Oncology                                  169.3     140.9       20 %         18 %       483.0       410.6       18 %         15 %
Surgical Specialties                       90.8      83.4        9 %          7 %       272.7       267.0        2 %          -
Other                                      21.6      20.0        8 %          8 %        68.0        60.9       12 %         11 %

                                        $ 616.8   $ 544.8       13 %         11 %   $ 1,817.9   $ 1,618.7       12 %         10 %

Vascular Products - Bard markets a wide range of products for the peripheral vascular market, including endovascular products, electrophysiology products and surgical graft products. Consolidated net sales for the quarter ended September 30, 2008 of vascular products increased 20% on a reported basis (15% on a constant currency basis) compared to the prior year quarter. U.S. net sales for the quarter ended September 30, 2008 of vascular products grew 15% compared to the prior year quarter. International net sales for the quarter ended September 30, 2008 increased 26% on a reported basis (15% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of vascular products increased 19% on a reported basis (14% on a constant currency basis) compared to the same period in the prior year. U.S. net sales for the nine months ended September 30, 2008 of vascular products grew 11% compared to the same period in the prior year. International net sales for the nine months ended September 30, 2008 increased 29% on a reported basis (18% on a constant currency basis) compared to the same period in the prior year. The vascular group is the company's most global business, with international net sales comprising 47% and 45% of consolidated net sales of vascular products for the quarters ended September 30, 2008 and 2007, respectively.

Consolidated net sales for the quarter ended September 30, 2008 of endovascular products increased 25% on a reported basis (21% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of endovascular products increased 25% on a reported basis (20% on a constant currency basis) compared to the same period in the prior year. The company's percutaneous

transluminal angioplasty balloon catheters, vena cava filters, stents, including the LifeStent®family of stents, and biopsy products contributed to the growth in this category for the quarter and nine months ended September 30, 2008.

Consolidated net sales for the quarter ended September 30, 2008 of electrophysiology products increased 20% on a reported basis (14% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of electrophysiology products increased 22% on a reported basis (15% on a constant currency basis) compared to the same period in the prior year. The company's steerable diagnostic catheter and electrophysiology laboratory systems lines contributed to the growth in this category for the quarter and nine months ended September 30, 2008.

Consolidated net sales for the quarter ended September 30, 2008 of surgical graft products decreased 1% on a reported basis (5% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of surgical graft products decreased 2% on a reported basis (6% on a constant currency basis) compared to the same period in the prior year.

Urology Products - Bard markets a wide range of products for the urology market, including basic drainage products, continence products and urological specialty products. Bard also markets the StatLock® stabilization device products, which are used to secure many types of catheters sold by Bard and other companies. Consolidated net sales for the quarter ended September 30, 2008 of urology products increased 5% on a reported basis (4% on a constant currency basis) compared to the prior year quarter. U.S. net sales of urology products for the quarter ended September 30, 2008 grew 2% compared to the prior year quarter. International net sales for the quarter ended September 30, 2008 of urology products increased 12% on a reported basis (8% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of urology products increased 8% on a reported basis (6% on a constant currency basis) compared to the same period in the prior year. U.S. net sales of urology products represented 71% of consolidated net sales of urology products for the nine months ended September 30, 2008 and grew 6% compared to the same period in the prior year. International net sales for the nine months ended September 30, 2008 of urology products increased 12% on a reported basis (7% on a constant currency basis) compared to the same period in the prior year.

Basic drainage products represent the core of the company's urology business. Consolidated net sales for the quarter ended September 30, 2008 of basic drainage products increased 11% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the quarter ended September 30, 2008 of infection control Foley catheter products grew 18% on both a reported basis and constant currency basis compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of basic drainage products increased 10% on a reported basis (8% on a constant currency basis) compared to the same period in the prior year. Consolidated net sales for the nine months ended September 30, 2008 of infection control Foley catheters grew 17% on both a reported basis and constant currency basis compared to the same period in the prior year.

Consolidated net sales for the quarter ended September 30, 2008 of urological specialty products, which include brachytherapy products and services, decreased 8% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of urological specialty products decreased 5% on a reported basis (7% on a constant currency basis) compared to the same period in the prior year. The decrease in sales of urological specialty products was primarily driven by a decline in brachytherapy sales. The company believes that the brachytherapy market has been losing procedural share to alternative therapies, a trend that may continue.

Consolidated net sales for the quarter ended September 30, 2008 of continence products increased 2% on a reported basis (1% on a constant currency basis) compared to the prior year quarter. Growth in continence products for the quarter was impacted by slowing growth in pelvic floor reconstruction products. Consolidated net sales for the nine months ended September 30, 2008 of continence products increased 9% on a reported basis

(7% on a constant currency basis) compared to the same period in the prior year. The company's pelvic floor reconstruction product line and surgical slings were the primary growth drivers in the continence category for the nine months ended September 30, 2008.

Consolidated net sales for the quarter ended September 30, 2008 of the Statlock® stabilization device product line increased 2% on a reported basis (1% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of the Statlock® stabilization device product line increased 18% on both a reported and constant currency basis compared to the same period in the prior year. For the quarter and nine months ended September 30, 2008, growth of the Statlock® line of products was unfavorably impacted by increased dealer purchases in the prior year quarter in anticipation of a price increase effective in November 2007.

Oncology Products - The company's oncology products include specialty access products used primarily for chemotherapy. Consolidated net sales for the quarter ended September 30, 2008 of oncology products grew 20% on a reported basis (18% on a constant currency basis) compared to the prior year quarter. U.S. net sales represented 75% of consolidated net sales of oncology products for the quarter ended September 30, 2008 and grew 21% compared to the prior year quarter. International net sales for the quarter ended September 30, 2008 of oncology products grew 17% on a reported basis (10% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of oncology products increased 18% on a reported basis (15% on a constant currency basis) compared to the same period in the prior year. U.S. net sales for the nine months ended September 30, 2008 of oncology products grew 17% compared to the same period in the prior year. International net sales for the nine months ended September 30, 2008 of oncology products grew 20% on a reported basis (11% on a constant currency basis) compared to the same period in the prior year. The company's specialty access ports and accessories, peripherally inserted central catheters ("PICCs") and vascular access ultrasound devices were the primary contributors to the growth in the oncology category for the quarter and nine months ended September 30, 2008.

Surgical Specialty Products - Surgical specialty products include soft tissue repair, performance irrigation and hemostasis product lines. Consolidated net sales for the quarter ended September 30, 2008 of surgical specialty products increased 9% on a reported basis (7% on a constant currency basis) compared to the prior year quarter. U.S. net sales for the quarter ended September 30, 2008 of surgical specialty products increased 6% compared to the prior year quarter. International net sales for the quarter ended September 30, 2008 of surgical specialty products increased 18% on a reported basis (11% on a constant currency basis) compared to the prior year quarter. Consolidated net sales for the nine months ended September 30, 2008 of surgical specialty products increased 2% on a reported basis (flat on a constant currency basis) compared to the same period in the prior year. U.S. net sales for the nine months ended September 30, 2008 of surgical specialty products decreased 3% compared to the same period in the prior year. International net sales for the nine months ended September 30, 2008 of surgical specialty products grew 17% on a reported basis (7% on a constant currency basis) compared to the same period in the prior year.

Consolidated net sales for the quarter ended September 30, 2008 of the company's soft tissue repair product line, which includes core hernia repair and hernia fixation products, increased 7% on a reported basis (5% on a constant currency basis) compared to the prior year quarter due primarily to growth in sales in core hernia repair products. Consolidated net sales for the nine months ended September 30, 2008 of the company's soft tissue repair product line increased 1% on a reported basis (decreased 2% on a constant currency basis) compared to the prior year period due primarily to: (i) the effect of the hold on the manufacture and the subsequent discontinuance of the sale of the company's Salute II hernia fixation device; and (ii) low growth of the company's core hernia repair products. The challenges in the soft tissue repair product line may continue.

On December 29, 2005, the company initiated a voluntary Class I product recall of its Bard® Composix® Kugel ® Mesh X-Large Patch intended for ventral hernia repair. Following the recall, the U.S. Food and Drug Administration ("FDA") conducted an inspection and issued a Form-483 notice to the company's Davol, Inc. subsidiary identifying certain observations. The company completed corrective actions to address the observations.

On March 15, 2006, the company voluntarily expanded the December 2005 recall to include certain manufacturing lots of the large Composix® Kugel® patch and large Composix® circle. In December 2006, the company decided to voluntarily expand the March 2006 recall to include additional manufacturing lots and initiated the expanded recall on January 10, 2007.

Following the expanded recall, the FDA conducted a follow-up inspection and issued a Form-483 notice to Davol identifying certain observations regarding Davol's quality systems. The company completed corrective actions to address the observations. On April 25, 2007, Davol received a Warning Letter from the New England District Office of the FDA resulting from the follow-up inspection. The Warning Letter relates specifically to non-conformances in Davol's quality systems previously identified in the related Form-483 notice. The Warning Letter states that, until Davol resolves the outstanding issues covered by the Warning Letter, no premarket submissions for Class III devices to which the non-conformances are reasonably related will be cleared or approved. Davol presently has no such submissions before the FDA. The company responded to the Warning Letter and completed corrective actions to address the observations. The FDA conducted a planned re-inspection of the Davol facility in the third quarter of 2008, which resulted in the issuance of a Form-483 notice. The company is in the process of responding to the FDA's observations and is implementing corrective actions to address them. The company cannot, however, give any assurances that the FDA will be satisfied with its response to the Warning Letter or as to the expected date of resolution of matters included in the Warning Letter or the most recent Form-483 notice.

On February 13, 2008, the FDA issued a Form-483 notice to the company in connection with an inspection of the company's manufacturing facility located in Humacao, Puerto Rico. The Form-483 notice identified certain observations regarding the facility's quality systems. The facility manufactures products for many of the company's divisions and subsidiaries, including soft tissue repair products for the company's Davol subsidiary. The company has responded to the FDA and is in the process of addressing these observations. On July 28, 2008, the company received a Warning Letter from the San Juan District office of the FDA. The Warning Letter relates specifically to non-conformances in quality systems previously identified in the related Form-483 notice. The Warning Letter states that, until the company resolves the outstanding issues covered by the Warning Letter, no premarket submissions for Class III devices to which the non-conformances are reasonably related will be cleared or approved. The company presently has no such submissions before the FDA. The company has responded to the Warning Letter and is implementing corrective actions to address the observations. However, the company cannot give any assurances that the FDA will be satisfied with its response to the Warning Letter or as to the expected date of resolution of matters included in the Warning Letter.

Other Products - The other product group includes irrigation, wound drainage and certain original equipment manufacturers' products. Consolidated net sales of other products for the quarter ended September 30, 2008 were $21.6 million, an increase of 8% on both a reported and constant currency basis compared to the prior year quarter.
Consolidated net sales of other products for the nine months ended September 30, 2008 increased 12% on a reported basis (11% on a constant currency basis) compared to the same period in the prior year.

Costs and Expenses

The following is a summary of major costs and expenses as a percentage of net
sales for the quarters and nine months ended September 30, 2008 and 2007,
respectively:



                                                       Quarter Ended                 Nine Months Ended
                                                       September 30,                   September 30,
                                                    2008            2007            2008           2007
Cost of goods sold                                    38.8 %          39.2 %          39.0 %         39.3 %
Marketing, selling and administrative expense         29.3 %          29.5 %          29.2 %         29.4 %
Research and development expense                       5.7 %           6.3 %           8.8 %          6.1 %
Interest expense                                       0.5 %           0.5 %           0.5 %          0.6 %
Other (income) expense, net                           (0.3 )%         (1.6 )%          1.4 %         (1.6 )%

Total costs and expenses                              74.0 %          73.9 %          78.9 %         73.8 %

Cost of goods sold - Cost of goods sold consists principally of the manufacturing and distribution costs of the company's products as well as royalties and the amortization of intangible assets. The impact of incremental amortization of intangible assets acquired in the past 12 months increased cost of goods sold over the prior year quarter and nine month period in each case by approximately 40 basis points. Reductions in cost of goods sold were attributed primarily to cost improvements, which offset the impact of incremental amortization of intangible assets.

Marketing, selling and administrative expense - Marketing, selling and administrative expense consists principally of the costs associated with the company's sales and administrative organizations. The company's marketing, selling and administrative expense as a percentage of net sales for the quarter and nine months ended September 30, 2008 was 29.3% and 29.2%, respectively, a decrease of 20 basis points, respectively, compared to the prior year periods.

Research and development expense - Research and development expense consists of expenses related to internal research and development activities, milestone payments for third-party research and development activities and purchased R&D costs arising from the company's business development activities. Purchased R&D payments may impact the comparability of the company's results of operations between periods. All research and development costs are expensed as incurred. For the quarter ended September 30, 2008, the company spent approximately $35.1 million on research and development activities compared to $34.0 million in the prior year quarter. For the nine months ended September 30, 2008, the company spent approximately $159.1 million on research and development activities compared to $99.2 million in the prior year period. Included in the research and development costs for the nine months ended September 30, 2008 was purchased R&D of approximately $49.3 million primarily associated with the acquisition of the LifeStent ® family of stents from Edwards Lifesciences.

Interest expense - Interest expense for the quarter ended September 30, 2008 increased to $3.1 million from $2.9 million in the prior year quarter. Interest expense for the nine months ended September 30, 2008 increased to $9.1 million from $8.8 million for the nine months ended September 30, 2007.

Other (income) expense, net - The table below presents the components of other (income) expense, net for the quarters and nine months ended September 30, 2008 and 2007, respectively:

                                          Quarter Ended               Nine Months Ended
                                          September 30,                 September 30,
  (dollars in millions)                2008           2007           2008           2007
  Interest income                   $     (3.9 )   $     (8.1 )   $    (13.7 )   $    (23.4 )
  Foreign exchange losses (gains)          1.7           (0.4 )          2.7           (1.1 )
  Asset disposition                         -              -            36.8             -
  Other, net                               0.3           (0.4 )          0.9           (0.6 )

                                    $     (1.9 )   $     (8.9 )   $     26.7     $    (25.1 )

Interest income - For the quarter ended September 30, 2008, interest income was approximately $3.9 million, compared to approximately $8.1 million for the prior year quarter. For the nine months ended September 30, 2008, interest income was approximately $13.7 million, compared to $23.4 million for the nine months ended September 30, 2007. The decrease for these periods was primarily due to lower average balances of cash and cash equivalents and lower interest rates.

Asset disposition - For the quarter and nine months ended September 30, 2008, the amount reflects a non-cash charge related to the write-off of certain assets related to the company's decision to discontinue the sale of the Salute II hernia fixation device. See Note 2 of the Notes to Condensed Consolidated Financial Statements.

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